Silver and gold say global growth (still) stinks

Michael A. Gayed, CFA, winner of the 2014 Dow Award, is chief investment strategist and co-portfolio
manager at
Pension Partners, LLC., an
investment advisor which manages mutual funds and separate accounts according
to its ATAC (Accelerated Time and Capital) strategies focused on inflation
rotation. Prior to this role,
Gayed served as a portfolio manager for a large international investment group,
trading long/short investment ideas in an effort to capture excess returns. From
2004 to 2008, Gayed was a strategist at AmeriCap Advisers LLC, a registered
investment advisory firm that managed equity portfolios for large institutional
clients. In 2007, he launched his own long/short hedge fund,
using various trading strategies focused on taking advantage of stock market
anomalies. Follow him on Twitter @pensionpartners and YouTube
youtube.com/pensionpartners.

Intermarket analysis is a branch of technical analysis which attempts to see if a consistent message is being said across and within asset classes and sector movement. Generally speaking, from a broad macro perspective, markets move largely off of growth and inflation expectations which drive earnings potential and industrial activity. Analyzing various markets at once can also help investors and traders potentially identify regime changes when it comes to market volatility, something documented in the summary version of our Dow Award winning paper.

With that said, the world finds itself in a bit of a bizarre situation. The Federal Reserve, arguably the biggest and baddest central bank in the world, has ended quantitative easing (QE) and is hoping to soon raise interest rates. On the surface, this might seem like the thing global investors are waiting for given how important U.S. economic growth is to the global landscape. Against that backdrop are the central banks of Japan and Europe, which are trying to figure out how to inject even more stimulus into their respective economies.

This seems bullish, but is only positive if such stimulus filters through to their economies instead of just their stocks. If central banks are destined to succeed at juicing growth and inflation expectations, one should expect cyclical sectors to perform well.

The industrials sector, for example, would likely become an overweight position in our equity sector ATAC Beta Rotation Fund
US:BROTX
when our risk trigger gives the all-clear to rotate out of defensive areas because of the market responding to better growth and inflation prospects. But for that sector to sustainably lead, there needs to be a feeling that global growth starts picking up.

One way of seeing the market's perception for that growth is to look at silver and gold relative to each other. Silver is often considered "poor man's gold," given that trend-wise, it acts similarly to gold. The main difference between the two, however, relates to Silver's sensitivity to industrial activity relative to gold which does not have as many commercial uses.

Take a look below at the price ratio of the iShares Silver Trust ETF
SLV, +0.00%
relative to the SPDR Gold Trust ETF
GLD, +0.22%
As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD. A falling ratio means underperformance.

While gold's price action has been weak, silver has been even weaker, as the far right of the ratio chart shows. This indicates that despite tremendous monetary action, industrial activity is still a bearish trade, regardless of central-bank actions. If global growth improves, the silver/gold ratio likely rises. However, the continued decline suggests that things may continue to worsen for global activity. U.S. stocks continue to ignore that, but at some point, that message may filter to equities more broadly.

In a globalized world, how exactly can the U.S. decouple forever from weakness in most other areas of the global investable landscape?

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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Mutual fund investing involves risk. Principal loss is possible. Because the Funds invest primarily in ETFs, they may invest a greater percentage of its assets in the securities of a single issuer and therefore is considered non-diversified. If a Fund invests a greater percentage of its assets in the securities of a single issuer, its value may decline to a greater degree than if the fund held were a more diversified mutual fund. The Funds are expected to have a high portfolio turnover ratio which has the potential to result in the realization by the Fund and distribution to shareholders of a greater amount of capital gains. This means that investors will be likely to have a higher tax liability. Because the Funds invest in Underlying ETFs an investor will indirectly bear the principal risks of the Underlying ETFs, including but not limited to, risks associated with investments in ETFs, large and smaller companies, real estate investment trusts, foreign securities, non-diversification, high yield bonds, fixed income investments, derivatives, leverage, short sales and commodities. The Fund will bear its share of the fees and expenses of the underlying funds. Shareholders will pay higher expenses than would be the case if making direct investments in the underlying funds. The Beta Rotation Fund is new with no operating history and there can be no assurances that the fund will grow or maintain an economically viable size.

All investing involves risks.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

The fund as of 11/6/2014 does not invest in any of the following investments: SLV, and GLD. Fund holdings are subject to change and are not recommendations to buy or sell any security. Current and future holdings are subject to risk.

MA(4) = 4 week moving average

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